Strategy Framework for Shared Growth with Partners

Mission

Strategy Direction

• Building a culture
  of fair trade based on trust
• Supporting growth and innovation
• Enhancing partners’
  sustainability

Details of Support

• Financial Support

• Support for Technology Innovation

• Support for Growth Infrastructure

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Supporting Technology Innovation

In 2018, six partners took part in the Business Partner Study Group on Innovation, a community for innovation activities that support partners with weak capabilities in production cost, production, quality, distribution, production technology and materials management, supporting them to develop plans and conduct improvement measures in quality, delivery and distribution. As a result, participating partners showed a 9% improvement (average of 4 partners) in capability assessment.
In 2019, the Group supported two partners in developing a smart manufacturing execution system (MES). As a result, their business capabilities improved by building real-time manufacturing and operation systems, supply plans in sync with Amorepacific’s system, and data-based inventory management system. Additionally, the Group provided consulting for 6 suppliers to improve issues with product impurities to enhance quality capabilities. As a result, the rate of returned products due to impurities improved by 42% compared to previous year.
In 2019, a total of 29 joint R&D projects were carried out in collaboration with partners, including a performance sharing scheme that shares the performance of joint innovation projects with partners, providing KRW 350 million in R&D funding to partners.

Financial Support

To help our partners secure financial soundness, Amorepacific Group manages a Win-Win Partnership Fund worth KRW 15.9 billion as of 2019, which provides direct assistance. It added KRW 3 billion in 2019 in funding for Mutual Growth Fund, which provides loans at a lower interest rate jointly with the Industrial Bank of Korea (IBK), from the previous 5.1 billion to 8.1 billion. We also manage a low interest rate loan fund of KRW 24 billion. In addition, as of 2019, the Group manages a KRW 600 million Mutual Growth Investment Fund in support of strengthening partners’ capabilities. In April 2016, we revised our payment policy to ensure that all payments made to small and medium-sized partners, with whom we have a shared growth agreement, are made 100% in cash within ten days of receiving invoice. And as of 2019, we have expanded the same method of payment to a total of 120 small and medium-sized partners. Amorepacific Group manages mutual growth partnership loan and cash payment monitoring system so that improving the payment method to our first-tier partners can lead to improved payment to second-tier partners. We contribute to spreading the culture of shared growth by encouraging shared growth agreements between first and second-tier partners. In September 2019, we introduced our shared growth settlement system for about 130 partners, with about KRW 85 billion worth of payment made through the system as of November 2019.

Supporting Growth Infrastructure

Since 2015, Amorepacific Group has provided both manpower and financial support every year for small and medium-sized partners to attend exhibitions held overseas to find ways to enter the global market. In 2019, we supported 7 partners categorizing overseas exhibitions into those appropriate for packaging companies and material companies.
We preemptively established a plan to raise unit cost in order to lessen the burden from labor costs for partners following the minimum wage increase in January 2018 and to rationalize unit price of suppliers, raising the unit cost by KRW 4.5 billion in total for our shared growth partners.
Our previous training program for small and medium-sized partners, Consortium for HRD Ability Magnified Program, ended by the end of 2018. We, however, held our own training program to enhance the capabilities of the employees of our partners and for a stable supply of manpower. In 2019, we developed 21 training courses centered around essential job positions in the cosmetics industry and provided education support to 1,145 employees across 163 companies.